Talk of property bubbles, rising interest rates and a cooling property market dominate the media at present and though it’s easy to jump to alarmist conclusions, the fact is that what we are seeing is simply the next stage of a constantly revolving property cycle.
BY MICHAEL YARDNEY
On the one hand this phase ushers in a period of lower capital growth and on the other it brings rising rents and higher yields.
According to RP Data, capital city house rents increased by 3.3 per cent in the last quarter alone.
This turnaround was anticipated by many industry analysts, including RP Data, who predict that rents will continue to increase next year due to a tightening of rental stock nationally as well as a higher interest rate environment that’s already putting the brakes on the first homebuyer market.
In other words, there are fewer vacant properties and a growing tenant pool as home ownership becomes a distant dream for many.
RP Data’s rental listing data indicates a nationwide decline of 15.1 per cent in the total number of dwellings advertised for rent since the numbers peaked in mid-July.
“Although the improvement in rents and yields has been slight to date, the higher interest rate environment, significant reduction in first home buyers and falling building approvals are all likely to contribute to heightened rental demand,” RP Data reports. “With these factors in mind, we expect that whilst the growth in residential property values is likely to be flat for at least the next 12 months, rental rates are likely to increase.”
If the Reserve Bank continues to raise interest rates to curb inflationary pressures, this will make it increasingly difficult for first homebuyers to get a foot in the proverbial (and literal) property door.
Additionally, building approvals and commencements are likely to slow significantly, resulting in a deficiency of new properties at a time when vacancies are already low.
For tenants, this means the prospect of getting off the rental treadmill is becoming less likely every day. Potential homebuyers are being forced into a corner, as they are hit with a triple whammy of rising rents, bigger deposits required and more difficulty servicing loans. On the other hand landlords will experience higher rents and higher yields.
Yes – we are moving into the next phase of the property cycle.
Michael Yardney is the director of Metropole Property Investment Strategists, a best-selling author and one of Australia’s leading experts in wealth creation through property. Subscribe to his e-magazine at www.propertyupdate.com.au. For more information about Michael visit www.metropole.com.au.